External Sector of India: UPSC Previous Year Questions (Indian Economy)

Explanation

Statement 1 is correct: PPP is an economic concept that compares the value of currencies by examining the cost of a standard "basket of goods" across different countries. It determines the exchange rate required for one currency to buy the same quantity of goods and services as it would in another country.

Statement 2 is incorrect: As of the latest available data, India ranks as the third-largest economy globally in terms of GDP based on PPP. According to the International Monetary Fund’s World Economic Outlook, India’s GDP (PPP) is approximately $13.17 trillion, placing it behind China and the United States.

Explanation

India enacted the Geographical Indications of Goods (Registration and Protection) Act, 1999, to comply with its obligations under the World Trade Organization (WTO). As a member of the WTO, India is bound by the Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS), which sets minimum standards for the protection of various forms of intellectual property, including geographical indications (GIs). TRIPS Agreement prescribe the minimum standards of protection that WTO members must provide for GIs. These provisions require member countries to prevent the misuse of GIs and to ensure that only authorized users can use a GI on products originating from the specified region

Explanation

Statement 1 is correct: The National Intellectual Property Rights (IPR) Policy of India, adopted in 2016, serves as a comprehensive vision document to guide the future development of IPRs in the country. The policy reaffirms India’s dedication to international agreements, including the Doha Development Agenda and the TRIPS Agreement. This commitment ensures that India’s IPR framework aligns with global standards and obligations.

Statement 2 is correct: The Department for Promotion of Industry and Internal Trade (DPIIT), formerly known as the Department of Industrial Policy and Promotion (DIPP), under the Ministry of Commerce and Industry, is designated as the nodal agency for regulating intellectual property rights in India. DPIIT is responsible for overseeing the implementation and enforcement of IPR laws and policies.

Explanation

Statement 1 is incorrect: The New Development Bank (NDB) was not set up by APEC (Asia-Pacific Economic Cooperation). It was established by the BRICS nations (Brazil, Russia, India, China, and South Africa) in 2014 during the 6th BRICS Summit in Fortaleza, Brazil. APEC is a regional economic forum comprising 21 Pacific Rim member economies.

Statement 2 is correct: The headquarters of the New Devel-opment Bank is in Shanghai, China. The bank became operational in 2015 and focuses on infrastructure and sustainable development projects in BRICS and other emerging economies. The headquarters was designed with a focus on innovation, efficiency, and sustainability which reflects the bank’s commitment to sustainable development.

Explanation

‘Import cover’ refers to the duration (typically measured in months) that a country’s foreign exchange reserves can sustain its current level of imports. This metric is crucial for assessing a nation’s external vulnerability and economic stability. To calculate import cover, the total foreign exchange re-serves are divided by the average monthly import expenditure. For instance, if a country has foreign exchange reserves of $60 billion and its average monthly imports amount to $10 billion, the import cover would be 6 months. A higher import cover indicates a stronger buffer against external economic shocks, as the country can continue to fund its import needs even during periods of reduced foreign exchange inflows. Conversely, a lower import cover suggests greater vulnerability to external pressures, such as fluctuations in global commodity prices or capital outflows.

Explanation

The terms Amber Box, Blue Box, and Green Box are classifications used within the framework of the World Trade Organization (WTO) to categorize different types of agricultural subsidies based on their trade-distorting effects. Amber Box: This category includes subsidies that are considered to distort production and trade. Examples encompass measures such as price support schemes and subsidies directly related to production quantities. These are subject to reduction commitments under the WTO agreements. Blue Box: Subsidies in this box are also trade-distorting but are conditioned upon programs that limit production. For instance, direct payments under production-limiting programs fall into this category. Blue Box subsidies are exempt from reduction commitments. Green Box: This box contains subsidies that cause minimal or no trade distortion. They are typically government-funded and do not involve price support. Examples include research funding, environmental programs, and disaster relief payments. Green Box subsidies are permitted without limits under WTO rules.

Explanation

Statement 1 is correct: The International Monetary and Financial Committee (IMFC) is a key body within the IMF structure. It discusses pressing issues related to the global economy and provides guidance to the IMF on its policies and work. It plays a crucial role in shaping the IMF’s agenda and priorities.

Statement 2 is correct: The World Bank participates as an observer in IMFC meetings. This allows for coordination and collaboration between the IMF and the World Bank on issues related to international finance and development. Given the interconnectedness of their work, it’s essential for both institutions to be aligned.

Explanation

The mentioned agreements and terms are related to global trade regulations under the World Trade Organization (WTO):

Agreement on Agriculture (AoA) is a WTO agreement that sets international rules for agricultural trade, subsidies, and market access. It aims to reduce trade barriers and promote fair competition in agriculture. Agreement on the Application of Sanitary and Phytosanitary (SPS) Measures: It establishes rules for food safety and animal and plant health standards in global trade. It ensures that countries do not use health measures as a disguised trade barrier. Peace Clause: It was introduced under the WTO’s Agreement on Agriculture. It temporarily protected agricultural subsidies from legal challenges under WTO rules. It was a major issue in India’s food security concerns at WTO negotiations.

Explanation

Statement 1 is incorrect: The rate of growth of Real Gross Domestic Product (GDP) in India has not steadily increased over the last decade (2005-2015). Instead, it has experienced fluctuations due to various factors such as global economic conditions, domestic policy changes, and structural reforms. For example: India experienced high GDP growth rates during the mid-2000s (around 9% in 2007-2008). The growth rate declined significantly during the global financial crisis of 2008-2009. Post-2010, growth rates recovered but remained volatile, with a slowdown in recent years due to factors like demonetization (2016) and the introduction of the Goods and Services Tax (GST) in 2017.

Statement 2 is correct: Gross domestic product at market prices is the sum of added values of all activities which produce goods and services, plus taxes and minus subsidies on products. When measured in nominal terms (i.e., at current market prices without adjusting for inflation), India’s GDP in rupees has shown a consistent upward trend over the past decade. This steady increase reflects the overall expansion of the economy in nominal terms.

Explanation

Statement 1 is correct: Budget deficit is used to define a status of financial health in which expenditures exceed revenue. Revenue Expenditure is the part of government spending that does not result in the production of assets such as Salaries, wages, pensions, subsidies, and interest payments etc. Reducing Revenue Expenditure involves cutting down on the government’s routine expenses, such as salaries, subsidies, and administrative costs. By streamlining operations and eliminating wasteful spending, the government can lower its revenue expenditure and reduce the budget deficit.

Statement 3 is correct: Rationalizing Subsidies entails reviewing and possibly reducing subsidies that are inefficient or benefit higher-income groups disproportionately. By targeting subsidies more effectively, the government can decrease un-necessary spending, aiding in deficit reduction. Statements 2 and 4 are incorrect:

Introducing New Welfare Schemes without corresponding revenue sources can increase government expenditure, potentially widening the budget deficit. Therefore, this action may not contribute to deficit reduction. Promoting industrial expansion can boost economic growth and over time increase government revenues through higher tax collections. However, the effects of such measures are typically long-term and may not provide immediate relief to a budget deficit.